Become a Fan

13 November 2013

The 'Art' of Economics

"An economic theorist who offers a model prepares the ground for a practitioner who should employ her judgment in using this model; but the theorist's contribution falls short of a testable prediction." (Gilboa, et. al. 11)

"Cases can never be refuted, and case-based reasoning is thus an attractive alternative to rule-based reasoning, allowing economists to work with models simple enough to be useful without worrying about refutations." (Gilboa, et. al. 27) [HT: Jong Jae Lee]

The two passages above are quoted from a paper "Economic Models as Analogies" forthcoming in the Economic Journal by a group of leading economists.* It represents part of a wider trend among economists re-interpreting their own activity (recall last week's post); in doing so, they are also making more sensible claims on behalf of economics, while trying to keep most of the economist's tool-kit intact (recall this post). Both passages reveal how thoughtful economists' are trying to come to grip not just with the charge that their models are not realistic (as noted throughout the opening sections of the paper), but with the widespread perception that their models have been refuted in the events of the last decade. While a cynic might interpret the two passages above as a belated admission that something was refuted in 2008, the significance of these passages is to be found in the renewed focus on judgment.

In the paper, Gilboa and his colleagues rely on a distinction and intellectual division of labor between "theorist" and "practitioner." The task of a theorist is to generate models that can function as cases that the practitioner can use in policy (see the historical narrative I offered last week).** The authors stipulate that they uses "case-based reasoning and analogical reasoning interchangeably, preferring the former when we focus on the database of cases and preferring the latter when we focus on the analogies that give rise to similarity judgments." (17 n. 11)

The significance of similarity is also clear in the nice operationalization of 'intuitive' that may be of interest to philosophers struggling with the status of judgments of intuitiveness in philosophy: "an argument is more intuitive, other things being equal, the more cases it reminds us of, and the stronger is the association (or, the greater the similarity) between the steps of the argument and these cases." (14) This nicely reveals that judgments of 'intuitiveness' are always judgments in light of existing theory and, thus, path-dependent. Here the hard work is being done by judgments of similarity.

Now, the paper presents itself as an advance over "philosophy of science" which "tends to view scientific activity as generating knowledge in the form of rules only. We argue that some of the practices that evolved in economics can be better understood if scientific knowledge can also be viewed as a collection of cases." (7) In response, I will try to avoid irony here: Thomas Kuhn's work on exemplars had put case-based cased reasoning at the center of practice oriented philosophy of science (especially the sort interested in cognitive science) for a generation or two before I entered graduate school in the mid 1990s (see here for an intro).

It is a sobering fact about disciplinary specialization that one of the most widely read philosophical books (Structure is cited over 60,000 times) is unknown to the authors of this piece even though its vocabulary of "paradigms" is deployed throughout this particular article. In fact, they claim that a paradigm in the form of "a standard language" is desirable because it allows one to see certain similarities more easily (3o). In fact, this claim -- it is the final conclusion of the paper-- is (a) offered without evidence and (b) without even reflecting on the opportunity costs involved (these are really economists). The only irony here is that an earlier generation of economists embraced Kuhn in order to entrench this idea (see here) so that no argument for it would have to be given.

None of this is to deny that the philosopher's professional fondness for generality tends to view case-based reasoning as a kind of inferior sister to other forms of reasoning. We tend to associate it with the engineering sciences not physics. And, in fact, while the authors routinely continue to appeal to physics to make their case, their argument really illustrates my point adapted from Shiller (last week) that leading economists are starting to talk about economics in terms familiar from engineering knowledge. Of course, the background theory that policy economists rely on remains relatively weak (say, in contrast, to engineering sciences that can rely on theory from physics, chemistry, metals, etc.)--a point I grasped back in 2005 when I knew much less about what economists do.

The crucial issue for economics and it is at the heart of this paper -- but not properly theorized at all -- is that in the developing picture of the economist as practitioner, there is increasing reliance on the judgment of similarity: that a known model/case is relevantly similar to a policy decision at hand. Such judgment was once known as the "art" of economics. Between the age (ca 1870) of Sidgwick and (Neville) Keynes and Milton Friedman's famous 1953 methodology paper (which is mentioned in the Gilboa et. al. paper), economists embraced a contrast between so-called value-free 'positive economics '(the realm of scientific consensus) and the 'art of economics,' which relyes on cultivated judgment (recall this post).***

That is, "economist-qua-practitioners" are supposed to develop a good judgment such that that they are capable of recognizing the similarity between the policy environment that they are facing and the relevant case(s) to be found in the portfolio of models that they are equipped with. Such judgments are, in principle, defeasible and given the contextual complexity that may enter in such judgments of similarity there is no theoretical reason to believe that there would be a consensus about these judgments. (Not to mention the fact, that one must also recognize the complicated feedback between practice and policy.) More important, the methodological reinterpretation proposed by the paper, thus, quietly opens the door to en exploration of the virtues and best practices that govern the judgments of such economists-as-practitioners. That is to say, this piece edges very close to topics ordinarily remain taboo in economics.

*Heartening the minds of my Kuhnian readers, who would predict a return to philosophy in the midst of a scientific emergency, the most recent version of the piece has a section with an overview of philosophical work on scientific modeling, including work on economic models. (Sadly, it lacks engagement with very rich psychological literature on analogies (e.g., Gentner), and there is no mention of Hesse's classic Models and Analogies.)

**As they put it in a note: "We focus here on results that are supposed to have concrete implications in terms of economic behavior." (p. 13 n. 6; the note recognizes that not all results need to have such character.) Ordinarily, I would call these self-described theorists, "theoreticians," (recall and here, here) in order to highlight the contrast with theorists that explore models without regard to policy at all. But in the post above, I'll respect actor's categories.

***The third category was the realm of values (farmed out to philosophers) (recall my post on Robeyns)

Comments

The 'Art' of Economics

"An economic theorist who offers a model prepares the ground for a practitioner who should employ her judgment in using this model; but the theorist's contribution falls short of a testable prediction." (Gilboa, et. al. 11)

"Cases can never be refuted, and case-based reasoning is thus an attractive alternative to rule-based reasoning, allowing economists to work with models simple enough to be useful without worrying about refutations." (Gilboa, et. al. 27) [HT: Jong Jae Lee]

The two passages above are quoted from a paper "Economic Models as Analogies" forthcoming in the Economic Journal by a group of leading economists.* It represents part of a wider trend among economists re-interpreting their own activity (recall last week's post); in doing so, they are also making more sensible claims on behalf of economics, while trying to keep most of the economist's tool-kit intact (recall this post). Both passages reveal how thoughtful economists' are trying to come to grip not just with the charge that their models are not realistic (as noted throughout the opening sections of the paper), but with the widespread perception that their models have been refuted in the events of the last decade. While a cynic might interpret the two passages above as a belated admission that something was refuted in 2008, the significance of these passages is to be found in the renewed focus on judgment.